A message about the financial health of workers' compensation in Washington State

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January 6, 2011

By Judy Schurke, Director

The State Auditor’s report released on Dec. 30, 2010, may create the misleading impression that the state’s workers’ compensation system administered by the Department of Labor & Industries will soon become insolvent.

First of all, it is important to note that the state workers’ compensation system is fundamentally sound and that the benefits injured workers need if they are injured on the job will continue to be available today and in the future.

The insolvency mentioned in the audit report refers to the Accident Fund contingency reserve, which is like a rainy day fund and is only a very small portion of the system’s current total assets of $11 billion. 

The audit focused on fund balances at the end of June 2010. But fund balances are constantly changing. By the third quarter of 2010, the amount of money in the contingency reserve had doubled over what was there at the end of June.

If we had charged the “break-even” premium rate that was indicated at the end of June 30 for the Accident and Medical Aid fund – as recommended in the audit report – it would have cost employers an additional $117 million – the equivalent of over 2,000 full-time jobs.

Instead, we proposed a 12 percent average rate increase for 2011, which equates to an average of 6.5 cents per hour, and we will draw down reserves to make up the difference.

Drawing down the contingency reserve is the right thing to do in this economic climate and does not threaten the long-term financial integrity of our state’s workers’ comp system. It has been done before, most recently in the 70s and 80s.

I agree with the State Auditor’s report that it is important for the State Fund to have a surplus to cover unexpected losses and shortfalls in premiums and investment income. However, a recession like this forces us to choose between maintaining a surplus or using it to keep Washington businesses open.

Gov. Gregoire recognized the need to address the troubling trends that are driving up costs and affecting the contingency reserve and that is why she asked me to work with business and labor leaders study these issues and make recommendations for improving workers’ comp.

This week the Governor announced her proposal for improvements to workers’ compensation. We need these changes to help control future costs in our state’s workers’ comp system.

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